Special Session Laws 2001, Chapter 10, Article 13, Section 1, mandates the Legislative Commission on Pensions and Retirement to study and recommend an appropriate mechanism for the recovery of unpaid member and employer retirement plan contributions from closed charter schools. The report, with draft proposed legislation to implement its recommendations, is due in February, 2002.

This meeting is the second Commission interim consideration of the topic. Commission consideration of the mandated study topic is expected to require one additional Commission meeting.

This Commission staff issue memorandum is the second issue memorandum on the mandated Commission interim study topic. The prior Commission staff issue memorandum on the topic reviewed the current status of public pension plan coverage for charter school employees, the extend of unpaid retirement plan contributions from currently closed charter schools, and the magnitude of the current charter school retirement plan contribution stream, which defines the potential for future defaults. This Commission staff issue memorandum will attempt to identify and review the available remedies for unpaid charter school retirement plan contributions and the available mechanisms for recovering previously unpaid closed charter school retirement plan contributions. Future Commission staff work on the topic is expected to include the preparation of a draft report based on the prior Commission staff issue memoranda and to draft into proposed legislative language the Commission’s recommendation on the appropriate mechanism for recovering unpaid retirement contributions from closed charter schools and any other relevant potential legislation related to retirement coverage for charter schools.

1. Closed Charter Schools With Unpaid Contribution Amounts.

The Minneapolis Teachers Retirement Fund Association (MTRFA), the Public Employees Retirement Association (PERA), and the Teachers Retirement Association (TRA) report unpaid closed charter school employee and employer retirement contributions. Of the 16 identified closed charter schools, four have unpaid retirement plan contributions.

The following indicates the charter schools that are closed as indicated by the Department of Children, Families and Learning (CFL) or by one or more of the four affected retirement plans:

1. Central Minnesota Deaf School
2. Dakota Open Charter School
3. Fort Snelling Academy
4. Frederick Douglass
5. Learning Adventures Middle School
6. PEAKS-Faribault
7. PEAKS-Pillager
8. Prairie Island Community School
9. Right Step Academy
10. Skills for Tomorrow Junior High
11. Strategies for Success
12. Success Academy
13. Summit School for the Arts
14. Toivola-Meadowlands

The following indicates the three closed charter schools that currently have unpaid retirement plan contributions due and owing, the principal amount of those unpaid contributions, and the retirement plan or plans involved:

Additionally, one closed charter school never included its non-teaching employees in retirement coverage by the General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General), although those employees were required by Minnesota Statutes, Chapter 353, to become PERA-General members. The following indicates the closed charter school and the estimated amount of the omitted retirement plan contributions that should have been made had the eligible employees been retirement plan members:

Specific information on the three affected retirement plans and their experience with closed charter school unpaid and omitted retirement plan contributions is available in corrected attachment items from the October 3, 2001, Commission staff issue memorandum on the topic (Attachment C, Minneapolis Teachers Retirement Fund Association (MTRFA); Attachment E, Teachers Retirement Association (TRA); and Attachment F, Public Employees Retirement Association (PERA)).

2. Observations About Current Unpaid or Omitted Closed Charter School Retirement Plan Contributions.

There are several observations that deserve to be presented relative to the current unpaid or omitted charter school retirement plan contributions. These observations are as follows:

1. Unpaid Contributions Occurred In A Minority of Closed Charter Schools. Only 28.6 percent of the indicated closed charter schools had unpaid retirement plan contributions. However, if the number of closed charter schools is reduced to the number of charter schools where there is no controversy or counterindication, or 10 charter schools, the percentage increases to forty percent.

2. Unpaid Contributions In Half The Cases Were Essentially Nominal. In two of the three total cases of closed charter schools with unpaid or omitted retirement plan contributions, the principal amount of the unpaid retirement plan contributions was essentially nominal. For both the Central Minnesota Deaf School and the Dakota Open School, involving the Teachers Retirement Association (TRA), the amount of the unpaid retirement plan contributions totaled less than $560 and appears to be no more than one payroll period amount of retirement plan contributions.

3. Amount of Unpaid Contributions Predominantly Involved MTRFA. When assessed by the amount of the unpaid retirement plan contributions, their occurrence predominated in the Minneapolis Teachers Retirement Fund Association (MTRFA) and not in the statewide teacher retirement plan involved, the Teachers Retirement Association (TRA). The following compares the percentage of the total unpaid retirement plan contribution amount attributable to each affected retirement plan:

Plan	Amount	Percentage
MTRFA	$22,831.86	94.42%
PERA-Unpaid	789.20	3.26%
TRA	559.61	2.31%
	$24,180.67	100.0%

4. Omitted Contributions Involved PERA, But Additional Omissions are Likely. Only the General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General) reported any omitted contribution amount, which was a significant amount ($195,680.27), but there are other gaps in indicated retirement plan coverage by closed charter schools which likely represent improperly excluded teachers and support employees and omitted contribution amounts. The apparent retirement coverage gaps are:

No Indicated Teacher Plan	No Indicated Support Personnel Plan
Learning Adventures Middle School	Dakota Open Charter School
Peaks-Faribault	Learning Adventures Middle School
Peaks-Pillager	Prairie Island Community School
	Strategies For Success

5. Only One Closed Charter Involved More Than One Retirement Plan. In only one case, the Frederick Douglass Charter School, were there unpaid retirement plan contributions to two pension plans. The amount of retirement contributions from the Frederick Douglass Charter School that were not paid to PERA was significantly smaller ($789.20 compared to $22,831.86) than the amount not paid to MTRFA.

6. Current Unpaid Contributions By Closed Charter Schools Indicate An MTRFA Contribution Collection Problem. The unpaid contributions from the closed charter school with significant unpaid contribution amounts, the Frederick Douglass Charter School, were likely unpaid for a significant period of time, indicating that the affected retirement plan, the Minneapolis Teachers Retirement Fund Association (MTRFA), either was inattentive to its own contribution collection procedures or was unsuccessful in pursuing existing collection options. For the Frederick Douglass Charter School and MTRFA, from the information on the number of teachers and average teaching salaries reported, the unpaid contributions approach two-thirds of a year of contributions.

7. Current Omitted Contributions by Closed Charter Schools Indicate a StPTRFA Membership Exclusion Checking Problem. The omitted contributions from the closed charter school with significant omitted contribution amounts, the Right Step Academy, likely represent a very long period for which support personnel were not reported as members of the General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General). The omitted contribution amounts were estimated by PERA from information provided by the St. Paul Teachers Retirement Fund Association (StPTRFA). PERA has substantial statutory requirements to check for public employees who are potentially inappropriately excluded from PERA membership and has the power to conduct field audits to gain or verify information. PERA indicated that the Right Step Academy never reported its support personnel for PERA membership, but has not explained why it was unable to obtain the necessary employment status information. The magnitude of the omitted contributions either indicates a large support personnel workforce, a very long period of omitted contributions, or a very significant support personnel average salary.

8. Reported Information Is Incomplete or Conflicting. In some cases with the affected charter schools, the information reported by the Department of Children, Families and Learning and by the affected pension plan(s), the information is incomplete or conflicting. For instance, for the Frederick Douglass Charter School, there is insufficient data on support staff personnel to fully evaluate the unpaid PERA contributions and for the Right Step Academy, there is no information provided by the Department of Children, Families and Learning on the number or average salary of support personnel to allow for an analysis of the reported omitted PERA contributions.

5. Identification of Potential Remedies.
   
   The Commission staff has identified eight potential remedies to handle the situation of the current unpaid closed charter school retirement plan contributions. A summary of each potential remedy is as follows:

1. Undertake Better Charter School Collection Procedures. It is unclear what steps the affected retirement plans have currently taken to recover unpaid member and employer retirement plan contributions beyond notifying the charter school of its obligation at some point. The Minnesota Collection Enterprise Division of the Department of Revenue is the primary collection tool of the State of Minnesota, but it is unclear whether any of the unpaid amounts have been referred to the division. From the division, uncollectable debts are eventually referred to private collections agencies.

2. Commence/Participate In Bankruptcy Proceedings. If any closed charter schools have sought bankruptcy protection under federal law, the affected retirement plan or plans could participate in future bankruptcy proceedings. If the closed charter schools have not initiated bankruptcy action, the affected retirement plans as creditors are empowered to compel bankruptcy activities and a liquidation of any closed charter school assets.

3. Initiate Litigation Against the Charter School Operator. The affected retirement plans could initiate litigation against the operator of a closed charter school for the principal amount of any unpaid retirement plan contributions plus interest since the default date. While there may be numerous potential causes of action that could be the basis for the litigation, ultimately, a fraud likely was perpetrated against the retirement plans and a legal action could be pursued on that basis.

4. Imposition of Charter Sponsor Obligation. Either by litigation or by legislation, the entity sponsoring the closed charter school could be held liable for the debts of the closed charter school. Although a sponsor is immune from civil liability with respect to all activities related to a sponsored charter school under Minnesota Statutes, Section 124D.10, Subdivision 25, Paragraph (c), there may still be sponsor liability if the sponsor was derelict in undertaking its responsibilities under law or contract to monitor the financial activities of the charter school or if the sponsor was aware of or participated in any charter school operator fraud. If litigation cannot establish charter sponsor liability, future proposed legislation could provide a reduction or setoff or a succession of reductions or setoffs against any future State aid payable to a charter school sponsor.

5. Retirement Fund Subsidization of Obligation. If no other remedy is implemented administratively or legislatively, the pension fund applicable to the affected retirement plan would ultimately bear whatever net liability that results. With closed charter schools, the extent of liability to be borne by the pension plan depends on the past and future employment and plan membership of the relevant personnel. If the personnel was new to public service and ultimately will never qualify for a public pension benefit, the lack of contributions will shift part of the burden to the affected plan members in a reduced refund and will reduce the actuarial gain that the retirement plan would otherwise obtain. If the personnel had extensive prior public service or if the personnel ultimately renders significant future public service, the pension plan and fund will suffer an actual actuarial loss.

6. Payment Obligation Spread Over Remaining Employing Units. Proposed legislation could be pursued that would spread the amount of the unpaid closed charter school member and employer contribution amounts, plus interest since the default, as a surcharge over a period of time against the universe of all remaining charter schools and charter school sponsors, or the universe of all other employing units. For the TRA and PERA unpaid charter school contribution amounts, these varying universes make a considerable difference, but for MTRFA or StPTRFA, there is perhaps little difference between all other charter school sponsors or all other employing units, since these plans are essentially single employer retirement plans.

7. Payment Obligation Spread Over Retirement Plan Contributors. Proposed legislation could be pursued that would spread the amount of the unpaid closed charter school member and employer contribution amounts, plus interest since the default, as a surcharge in effect for a period of time over the members and employers covered by the retirement plan.

8. State Payment. Proposed legislation could be pursued that would have the State of Minnesota pay the amount of the unpaid closed charter school contribution amounts, plus interest since the default date. The payment obligation could be charged against the Department of Children, Families and Learning, deducted from aid dedicated for charter schools, or paid from the State General Fund. The 2001 Session proposed legislation, S.F. 2038 (Pogemiller); H.F. 2215 (Mares), as introduced, would have paid the unpaid amounts from the State’s General Fund. The 2001 Session proposed legislation as recommended by the Legislative Commission on Pensions and Retirement and amended in the Senate (see Attachment A) would have deducted the unpaid amounts from the charter school building lease aid otherwise payable.

A-1. Draft Proposed Legislation LCPR01-223; Enhanced Retirement Plan Contribution Collection Activities and Responsibilities.

1. Summary
   
   Draft LCPR01-223 amends portions of Minnesota Statutes, Chapters 16D, relating to state debt collection; 353, relating to the Public Employees Retirement Association (PERA); 354, relating to the Teachers Retirement Association (TRA), and 354A, relating to the first class city teacher retirement fund associations, by making the following changes:

   1. Specifically Including Unpaid Charter School Contributions In Debt Collection Enterprise Function. The debts subject to collection by the Minnesota Collection Enterprise in the Department of Finance are redefined to specifically include unpaid charter school retirement plan contributions; and

   2. Retirement Plan Administrators Required To Certify Unpaid Charter School Contributions For Collection. PERA, TRA, and the first class city teacher retirement fund associations are given state agency status for the purpose of having their unpaid contributions collected by the Minnesota Collection Enterprise and are required to certify any unpaid charter school contributions that are in default for 60 days or more.

2. Policy Issues
   
   Draft LCPR01-223 raises several pension and related public policy issues that may merit consideration by the Commission, as follows:

   1. Potential Burden on the Minnesota Collection Enterprise. The policy issue is the potential burden that the attempted collection of closed charter school unpaid retirement plan contributions will place on the Minnesota Collection Enterprise. It is unclear whether unpaid retirement plan contributions are currently subject to this debt collection process and this assignment, if new, may interfere with the entity’s intended purpose.

   2. Potentially Insignificant Collection Amounts. The policy issue is the potential that the unpaid retirement plan contributions by closed charter schools may be relatively insignificant compared to the other debts that the Minnesota Collection Enterprise pursues on behalf of the State of Minnesota.

   3. Lack of Clear Obligor. The policy issue is the potential difficulties that the Minnesota Collection Enterprise may have in pursuing closed charter school unpaid retirement plan contributions because, following the charter school closure, there may not be any person or entity with a continuing obligation to make the payments.

   4. Better Resolution Through Retirement Plan Vigilance. The policy issue is the appropriateness of the assignment of closed charter school unpaid retirement plan contributions to the Minnesota Collection Enterprise when the timeliness of charter school retirement plan contributions can be better monitored and enforced by a vigilant retirement plan administration.

A-2. Draft Proposed Legislation LCPR01-224; Increased Charter School Sponsor Liability For Unpaid Charter School Contributions.

1. Summary
   
   Draft LCPR01-224 amends Minnesota Statutes, Section 124D.10, Subdivision 25, the portion of the charter school law that indemnifies sponsors of charter schools from most or all liability for sponsored charter school activities, by providing that the sponsor is liable for any unpaid retirement plan contributions by a closed charter school if the sponsor knew or should have known that the charter school had defaulted on its obligation.

2. Policy Issues
   
   Draft LCPR01-224 raises several pension and related public policy issues that may merit Commission consideration, as follows:

1. Reversal of Perceived Sponsor Immunity After The Fact. The policy issue is the likely perception that the liability clarification will be viewed by charter schools and charter school sponsors as a reversal of current immunity of sponsors from charter school debt that was imposed after the fact. Although the draft legislation would only apply to new closures of charter schools, its application to charters in force may be viewed as equivalent to "ex post facto" legislation that is banned by Article 1, Section 11, of the Minnesota Constitution. The sponsors of the three closed charter schools which left unpaid retirement plan contributions currently are:

2. Likely Impediment To The Formation of Future Charter Schools. The policy issue is the impediment that imposing liability for unpaid closed charter school retirement plan contributions on charter school sponsors will become to the formation of future charter schools. If the State desires to encourage the creation of more charter schools, potential future retirement plan defaults may be a price for that encouragement.

3. Litigation Is a Costly Recovery Tool. The policy issue is the appropriateness of relying on litigation as a principal means for recovering unpaid closed charter school retirement plan contributions because of its cost in both legal fees and time.

A-3. Draft Proposed Legislation LCPR01-243; One-Time Surcharge On Open Charter Schools For Unpaid Closed Charter School Contribution Amount.

1. Summary
   
   Draft LCPR01-243 imposes a one-time surcharge of $400 on each charter school that was in operation during the 2001-2002 school year, to be collected by the Commissioner of Children, Families and Learning, and used to offset the current amount of unpaid retirement contributions and interest attributable to closed charter schools.

2. Policy Issues
   
   Draft LCPR01-243 raises several pension and related public policy issues that may be of concern to the Commission, as follows:

1. Potential Financial Burden on Current Charter Schools. The policy issue is the potential financial burden that the imposition of a one-time $400 surcharge on each current charter school to pay recent closed charter school retirement plan contributions defaults will constitute.

2. Fairness of Imposing Surcharge Burden. The policy issue is the perceived unfairness of an imposition of a one-time surcharge on all current charter schools to cover the retirement plan defaults by recently closed charter schools. Some of the current charter schools were not even in existence when the applicable charter schools closed and no charter school has or ever had the power to police the financial affairs of any other charter school.

3. Potential Surcharge Collection Problems and Defaults. The policy issue is the potential for problems in collecting the surcharge from current charter schools and surcharge defaults by charter schools that are offended by the surcharge imposition.

A-4. Draft Proposed Legislation LCPR01-225; One-Time Surcharge On Employing Units For Unpaid Closed Charter School Contribution Amount.

1. Summary
   
   Draft LCPR01-225 imposed a one-time surcharge on employing units participating in the Duluth Teachers Retirement Fund Association (DTRFA), the Minneapolis Teachers Retirement Fund Association (MTRFA), the General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General), the St. Paul Teachers Retirement Fund Association (StPTRFA), and the Teachers Retirement Association (TRA), with each plan’s surcharge total allocated in proportion to the active membership of each plan, to be collected by each retirement plan in the manner determined by the retirement plan’s governing board, and used to offset the current amount of unpaid closed charter school retirement contributions.

2. Policy Issues
   
   Draft LCPR01-225 raises several pension and related public policy issues that may merit discussion by the Commission, as follows:

1. Fairness of Imposing A Surcharge on Employing Units. The policy issue is the perceived unfairness of imposing a one-time surcharge to recover unpaid closed charter school retirement contributions on all employing units participating in the five affected retirement plans, when those employers had no opportunity or responsibility to police the behavior of the offending closed charter schools.

2. Potential Internal Plan Controversy In Surcharge Allocation. The policy issue is the potential controversy that will be created for the five affected retirement plan governing boards in determining the manner for allocating the surcharge burden. The affected retirement boards are not usually called upon to perform this function.

3. Administrative Complexity In The Surcharge Collection and Disbursement. The policy issue is the potential administrative complexity in utilizing the retirement plans to collect a surcharge for transmittal to the Department of Children, Families and Learning and its disbursement back to four of the five affected retirement plans.

A-5. Draft Proposed Legislation LCPR01-225; One-Time Surcharge on Retirement Plan Members and Employers For Unpaid Closed Charter School Contribution Amount.

1. Summary
   
   Draft LCPR01-226 imposed a one-time surcharge on the members of the Duluth Teachers Retirement Fund Association (DTRFA), the Minneapolis Teachers Retirement Fund Association (MTRFA), the General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General), the St. Paul Teachers Retirement Fund Association (StPTRFA), and the Teachers Retirement Association (TRA) and on their employers, with each plan’s surcharge total allocated in proportion to the number of active members in each plan, to be collected by each affected retirement plan in the manner determined by the retirement plan’s governing board, and used to offset the current amount of unpaid retirement contributions attributable to closed charter schools.

2. Policy Issues
   
   Draft LCPR01-226 raises several pension and related public policy issues that may merit consideration by the Commission, as follows:

1. Fairness of Imposing Surcharge on Retirement Plan Members. The policy issue is the perceived unfairness of including retirement plan members in the imposition of a surcharge to recover unpaid closed charter school retirement plan contributions, which presumably were employer/management decisions.

2. Potential Internal Plan Controversy In Surcharge Allocation. See policy issue #2 for Draft LCPR01-225 (A-4).

3. Administrative Complexity In The Surcharge Collection and Disbursement. See policy issue #3 for Draft LCPR01-225 (A-4).

A-6. Draft Proposed Legislation LCPR01-227; Payment of Unpaid Closed Charter School Contribution Amount By The Department of Children, Families and Learning.

1. Summary
   
   Draft LCPR01-227 provides for State payment of unpaid closed charter school contributions from the Fiscal Year 2003 Department of Children, Families and Learning budget.

2. Policy Issues
   
   Draft LCPR01-227 raises several pension and related public policy issues that may be of concern to the Commission, as follows:

A-7. Draft Proposed Legislation LCPR01-228; Payment of Unpaid Closed Charter School Retirement Contribution Amount As Deduction From Charter School Lease Aid.

1. Summary
   
   Draft LCPR01-228 requires that the State of Minnesota pay any unpaid retirement plan contribution from charter schools that have closed before April 1, 2002, by deducting the unpaid closed charter school retirement contribution from charter school lease state aid.
   

2. Policy Issues
   
   Draft LCPR01-228 raises several pension and related public policy issues that may merit Commission consideration, as follows:

1. Appropriateness of Placing Unpaid Contribution Burden on Charters Schools. See policy issue #1 for Draft LCPR01-243 (A-3).

2. Appropriateness of the Allocation of the Burden Between Charter Schools. The policy issue is the appropriateness of the manner in which the burden to pay unpaid closed charter school retirement plan contributions is allocated between the remaining charter schools. Charter school lease aid is a function, in part, of the size of the lease payments borne by the charter school and the size of its pupil population. Neither of those factors may be the optimal basis for allocating the contribution payment burden.

3. Unclear Relationship Between Lease Aid and Retirement Contributions. The policy issue is the appropriateness of singling out charter school aid from all the other types of State support of charter schools to bear the burden of the payment of unpaid closed charter school retirement plan contributions.

A-8. Draft Proposed Legislation LCPR01-229; Payment of Unpaid Closed Charter School Retirement Contribution Amount From The State General Fund.

1. Summary
   
   Draft LCPR01-229 requires payment by the State of Minnesota of any unpaid retirement plan contributions from charter schools that have closed before April 1, 2002, from the State’s General Fund.

2. Policy Issues
   
   Draft LCPR01-229 raises several pension and related public policy issues that may be of concern to the Commission, as follows:

1. Precedent For Future Additional State Bailouts. See policy issue #3 for Draft LCPR01-227 (A-6).

2. Potential Encouragement of Future Charter School Retirement Contribution Irresponsibility. The policy issue is the potential that State General Fund payment of current unpaid closed charter school retirement plan contributions will encourage other charter schools in the future to delay in making retirement contributions in times of financial stress or to default in retirement contributions in favor of other expenditure items in the period prior to a future closure.

3. Potential Encouragement of Future Contribution Collection Laxity by Retirement Plan Administrators. The policy issue is the potential that a State General Fund indemnification of retirement plans from the financial consequences of unpaid retirement contributions by closed charter schools will provide a disincentive for those retirement plans to be vigilant and aggressive in pursuing late or deficient charter school contributions.

1. Open Charter Schools.
   
   There are 68 charter schools which have been identified by either the Department of Children, Families and Learning and/or one or more Minnesota public retirement plan as being open charter schools. The following sets forth a list of the 68 schools, organized alphabetically:
   
   Academia Cesar Chavaz Charter School (University of St. Thomas)
   Acorn Dual Language Community Academy (Independent School District No. 625 (St. Paul))
   Agricultural and Food Sciences Academy (NE Metro Intermediate District No. 916)
   Aurora Charter School (St. Mary’s University)
   Bluffview Montessori Charter School (Winona School District)
   Cedar-Riverside Community School (Special School District No. 1 (Minneapolis))
   City Academy (College of St. Catherine)
   Community of Peace (Independent School District No. 625 (St. Paul))
   Concordia Creative Learning Academy (Concorida University)
   Coon Rapids Learning Center (Bethel College)
   Crosslake Community School (Minnesota State Board of Education)
   Cyber Village Academy (Special School District No. 1 (Minneapolis))
   Duluth Edison Academies (Duluth School District)
   ECHO Charter School (Yellow Medicine East School District)
   Eci Nompa Woonspe Charter School (Redwood Falls School District)
   El Colegio Charter School (Augsburg College)
   Emily Charter School (Minnesota State Board of Education)
   Excell Academy (North Central University)
   Face to Face Academy (Independent School District No. 625 (St. Paul))
   Family Academy (NE Metro Intermediate School District 916)
   Fort Snelling Academy (Normandale College)
   Four Directions Charter (Metropolitan State University)
   Hanska Community School (New Ulm School District)
   Harvest Preparatory Academy (Special School District No. 1 (Minneapolis))
   Heart of the Earth Center for the American Indian Education (Special School District No. 1 (Mpls.))
   High School for the Recording Arts (Independent School District No. 625 (St. Paul))
   Higher Ground (Independent School District No. 625 (St. Paul))
   Hope Community Academy (St. Thomas University)
   La Crescent Montessori Academy (Minnesota State Board of Education)
   Lafayette public Charter School (New Ulm School Board)
   Lakes Area Charter School (Alexandria Technical College)
   Learning Adventures Middle School (Central Lakes College)
   Martin Hughes Charter 4040 (Mountain Iron-Buhl School Board)
   Math and Science Academy (Minnesota State Board of Education)
   Metro Deaf School (Forest Lake School District)
   Mexica Multicultural Education (Independent School District No. 625 (St. Paul))
   Minnesota Business Academy (Independent School District No. 625 (St. Paul))
   Minnesota Institute of Technology 9210 (University of St. Thomas)
   Minnesota Institute of Technology 9130 (University of St. Thomas)
   Minnesota New Country School (LeSueur/Henderson School District)
   Minnesota Technology High School (Inver Hills Community College)
   Minnesota Transitions Charter School (Special School District No. 1 (Minneapolis))
   Native Arts High School (Augsburg College)
   Nerstrand Charter School (Faribault School District)
   New Heights School (Stillwater School District)
   New Spirit School (Independent School District No. 625 (St. Paul))
   New Visions School (Special School District No. 1 (Minneapolis))
   North Lakes Academy (Minnesota State Board of Education)
   Odyssey Charter School (Osseo School District)
   PACT Charter School (Anoka-Hennepin School District)
   PEAKS Charter School Duluth (Central Lakes Community College)
   Peak’s Charter School, Faribault (Central Lakes College)
   Peak’s Charter School, Pillager (Central Lakes College)
   PEAKS Charter School, St. Cloud (Central Lakes Community College)
   Pillager Area Charter School (Central Lakes Community College)
   River Bend Academy (Minnesota State Board of Education)
   Riverway Learning Community (Rochester Community and Technical College)
   Rochester Off Campus (Rochester Community and Technical College)
   Schoolcraft Learning Community (Minnesota State Board of Education)
   Skills for Tomorrow Senior High School (Rockford School District)
   Sojourner Truth Academy (Special School District No. 1 (Minneapolis))
   St. Paul Family Learning Center (Independent School District No. 625 (St. Paul))
   Strategies for Success (Independent School District No. 625 (St. Paul))
   Studio Academy (College of Visual Arts)
   Twin Cities Academy (Independent School District No. 625 (St. Paul))
   Village School of Northfield (Northfield School District)
   World Learner of Chaska (Chaska School District)
   Yankton Country Schools (Balaton School District)

There are 34 sponsoring entities for the 68 open charter schools, involving 27 public sector entities and seven private institutions of higher education. The following organizes the 68 open charter schools by sponsoring organization and indicates the number of 2000-2001 school year teachers and support staff for each charter school:

		2000-2001 School Year Data
Sponsoring Entity	Charter School	No. of   Teachers	Average Teacher   Salary	No. of  Support Staff	Average Support   Staff Salary
Alexandria Technical College	Lakes Area Charter School	8	17,696.31	7	7,279.03
Anoka-Hennepin School District	PACT Charter School	40	21,359.49	34	9,514.39
Augsburg College	El Colegio Charter School	3	33,333.30
	Native Arts High School	5	31,429.64
Balaton School District	Yankton Country School	4	22,766.76
Bethel College	Coon Rapids Learning Center	11	29,969.82	6	23,570.24
Central Lakes Community College	Learning Adventures Middle School	5	38,893.46	7	11,714.61
	PEAKS Charter School Duluth	7	21,621.00	5	10,730.19
	Peak’s Charter School, Faribault	9	9,292.09
	Peak’s Charter School, Pillager	7	13,372.91
	PEAKS Charter School St. Cloud	4	28,771.09	3	9,614.39
	Pillager Area Charter School
Chaska School District	World Learner of Chaska	5	34,714.33	8	16,112.41
College of St. Catherine	City Academy	10	40,368.71	12	21,063.36
College of Visual Arts	Studio Academy	9	31,800.00
Concordia University	Concordia Creative Learning Academy	11	34,895.45	31	7,125.71
Faribault School District	Nerstrand Charter School	14	28,466.50
Forest Lake School District	Metro Deaf School	25	34,560.92	26	9,628.73
Independent School District No. 625 (St. Paul)	Acorn Dual Language Community Academy	24	33,322.20	21	14,060.39
	Community of Peace	47	35,279.42	36	13,909.17
	Face to Face Academy	6	30,298.25
	High School for the Recording Arts	4	35,310.48	2	29,873.26
	Higher Ground	25	34,825.80	78	8,697.76
	Mexica Multicultural Education	4	27,507.30	10	7,564.01
	Minnesota Business Academy	32	34,234.47	25	13,592.89
	New Spirit School	30	29,736.60	13	18,856.99
	St. Paul Family Learning Center	13	37,691.02	47	8,910.32
	Strategies for Success
	Twin Cities Academy	24	34,462.61	9	9,767.22
Independent School District No. 709 (Duluth)	Duluth Edison Academies	88	24,633.00
Inver Hills Community College	Minnesota Technology High School	5	38,725.11	13	13,268.82
LeSueur/Henderson School District	Minnesota New Country School	10	35,633.34
Metropolitan State University	Four Directors Charter	4	43,479.31	5	12,677.38
Minnesota State Board of Education	Crosslake Community School	8	12,223.55
	Emily Charter School	17	11,647.87	13	9,530.55
	La Crescent Montessori Academy	6	16,975.02	5	12,913.78
	Math and Science Academy	22	22,205.51	7	26,392.03
	North Lakes Academy	18	26,816.14	8	15,563.20
	River Bend Academy	12	33,634.56
	Schoolcraft Learning Community	12	27,189.25	9	7,447.78
Mountain Iron-Buhl School Board	Martin Hughes Charter 4040	20	29,780.48	27	13,776.83
New Ulm School District	Hanska Community School	12	8,240.80
	Lafayette Public Charter School	10	16,194.30
Normandale College	Fort Snelling Academy	19	32,845.41	4	23,310.22
North Central University	Excell Academy
NE Metro Intermediate District No. 916	Agricultural and Food Sciences Academy
	Family Academy	14	19,903.06	10	5,648.45
Northfield School District	Village School of Northfield	6	28,421.94	6	14,592.33
Osseo School District	Odyssey Charter School	20	22,443.33	26	9,677.75
Redwood Falls School District	Eci Nompa Woonspe Charter School	4	40,549.29	12	8,906.56
Rochester Community and Technical College	Riverway Learning Community	17	9,457.64	4	9,974.83
	Rochester Off Campus	19	19,902.35	1	32,873.48
Rockford School District	Skills for Tomorrow Senior High School	4	35,541.45	16	15,297.94
St. Mary’s University	Aurora Charter School	3	20,738.39	5	13,757.71
Stillwater School District	New Heights School	17	22,426.26	11	14,770.12
Special School District No. 1 (Minneapolis)	Cedar-Riverside Community School	9	26,111.84
	Cyber Village Academy	11	39,568.90	12	13,841.82
	Harvest Preparatory Academy	18	20,561.69
	Heart of the Earth Center for American Indian Education	41	23,317.67	46	18,567.80
	Minnesota Transitions Charter School	32	18,763.27	39	6,721.58
	New Visions School	42	25,246.92	58	10,677.34
	Sojourner Truth Academy	20	25,975.50	23	14,081.61
University of St. Thomas	Academia Cesar Chavaz Charter School
	HOPE Community Academy	24	29,607.25
	Minnesota Institute of Technology #9130	30	30,336.62
	Minnesota Institute of Technology #9210
Winona School District	Bluffview Montessori Charter School	25	13,891.13
Yellow Medicine East School District	ECHO Charter School	12	12,585.15

2. Extent of Ongoing Retirement Plan Contributions.
   
   For the 2000-2001 school year, 1,018 teachers and 773 support staff in open charter schools were covered by Minnesota public pension plans, involving $4.5 million in annual contributions. The following sets forth the breakdown of those numbers, organized by retirement plan:
   
   

Public  Retirement Plan	Number of Charter Schools Reporting	Number of Teachers/ Support  Employees	Total Employee  Contributions	Total Employer  Contributions	Total Contributions
DTRFA	2	95	$127,547.80	$134,273.05	$261,820.85
MTRFA	11	196	267,233.45	395,505.50	622,738.95
StPTRFA	20	334	621,720.40	942,754.20	1,564,474.60
TRA	32	393	417,907.43	417,907.43	835,814.86
PERA	44	773	428,402.25	467,183.93	895,586.18
Total		1791	$2,162,811.33	$2,357,624.11	$4,520,435.44

Specific information on the five public retirement plans and the open charter schools to which they provide retirement coverage is available in reprinted attachment items from the October 3, 2001, Commission staff issue memorandum on the topic (Attachment G, Duluth Teachers Retirement Fund Association (DTRFA); Attachment H, Minneapolis Teachers Retirement Fund Association (MTRFA); Attachment I, St. Paul Teachers Retirement Fund Association (StPTRFA); Attachment J, Teachers Retirement Association (TRA), and Attachment K, Public Employees Retirement Association (PERA)).

The open charter school member and employer retirement plan contributions constitute various proportions of total retirement plan member and employer contributions, as indicated in the following:

Retirement  Plan	No. of Charter School  Members	Charter School Average  Salary	Retirement Plan Average  Salary\1	Retirement Plan Average Salary <5 Years\1	Retirement Plan Average Salary >24 Years\2	Total Charter School  Member   Contr.	% Total Plan Member  Contr.\2	Total Charter School Employer  Contr.	% Total Plan Employer  Contr.\2
DTRFA	95	$24,411.06	$38,785.68	$19,128.66	$57,041.35	$127,547.80	4.15%	$134,273.05	4.15%
MTRFA	196	24,789.75	46,436.25	28,520.24	71,558.56	267,233.45	1.63	395,505.50	1.65
StPTRFA	334	33,844.33	44,502.86	28,399.03	69,019.10	621,720.40	4.91	942,754.20	4.97
TRA	393	21,267.55	41,901.30	23,808.22	57,302.16	417,907.43	0.28	417,907.43	0.28
PERA	773	11,667.52	27,905.85	17,533.91	43,831.37	428,402.25	0.24	467,183.93	0.24

Note:    \¹ Salary figures have been projected for the 2000-2001 school year from the July 1, 2000 actuarial valuation figures by 5.25% for DTRFA, 5.00% for MTRFA, 5.25% for StPTRFA, 5.00% for TRA, and 5.00% for PERA, which are the bottom end of the range of assumed salary increases for the plans.
\² The gross July 1, 2000 contributions were adjusted by the same percentage as applicable in note \¹.

3. Observations About Current Charter School Retirement Plan Coverage and Contributions.

There are several observations that deserve to be presented relative to the situation of open charter school retirement plan coverage and retirement plan contributions. These observations are as follows:

1. Potential For Omitted Coverage: Charter Schools Without PERA Coverage. Of the 68 open charter schools, 20 charter schools have teachers with retirement coverage by either the Teachers Retirement Association (TRA) or first class city teacher retirement fund associations, but lack any support staff with Public Employees Retirement Association (PERA) retirement coverage. This raises the question of whether or not all the public employees who are eligible for public retirement plan coverage have PERA coverage. If some individuals should be PERA members, but are not, as was the case with the closed Right Step Academy, this would understate the amount of ongoing retirement contributions and may give rise to omitted retirement coverage or service credit purchase problems in the future. The affected charter schools are:

Bluffview Montessori Charter School (Winona School District)

Cedar-Riverside Community School (Special School District No. 1 (Minneapolis))

Crosslake Community School (Minnesota State Board of Education)

Duluth Edison Academies (Duluth School District)

ECHO Charter School (Yellow Medicine East School District)

El Colegio Charter School (Augsburg College)

Face to Face Academy (Independent School District No. 625 (St. Paul))

Hanska Community School (New Ulm School District)

Harvest Preparatory Academy (Special School District No. 1 (Minneapolis))

HOPE Community Academy (St. Thomas University)

Minnesota Institute of Technology 9210 (University of St. Thomas)

Minnesota Institute of Technology 9130 (University of St. Thomas)

Minnesota New Country School (LeSueur/Henderson School District)

Nerstrand Charter School (Faribault School District)

Peak’s Charter School, Faribault (Central Lakes College)

Peak’s Charter School, Pillager (Central Lakes College)

River Bend Academy (Minnesota State Board of Education)

Studio Academy (College of Visual Arts)

Yankton Country School (Balaton School District)

2. Potential For Omitted Coverage; CFL List Differences. In checking the Department of Children, Families and Learning (CFL) website relating to charter schools, differences between the information provided before September 15, 2001, and the website information are apparent. The differences could indicate undercoverage of charter school teachers, charter school support personnel, or both. The differences are as follows:
   
   

Charter Schools Omitted From CFL Website		Charter Schools Newly Included in CFL Website
Fort Snelling Academy		Avalon School (St. Mary’s College)
Learning Adventures Middle School		Blue Sky Charter School (Brooklyn Center School Dist.)
Peak’s Charter School, Faribault	(N)	Friendship Academy of Fine Arts (Special School District No. 1 (Mpls.))
Peak’s Charter School, Pillager		Great River Educational Center (Central Lakes College)
Peak’s Charter School, St. Cloud	(N)	Harbor City International School (Volunteers of America)
Strategies for Success	(N)	MN Academy of Software Technology (St. Paul Technical College)
	(N)	MN International Middle School (Century College)
	(N)	Twin City International Elementary School (Century College)
	(N)	WISF Charter School (YMCA, Minneapolis)

(N) indicates charter school opening Fall 2001 or Fall 2002

3. Potential For Omitted Coverage; Inconsistent or Unusual Data. In 22 of the 68 indicated open charter schools, an unusually large number of support personnel in comparison to the number of teachers was indicated. This raises a question about potential inaccuracies in the reported data, which could mean omitted pension plan members. The open charter schools involved in potential inconsistent or unusual data are as follows:

Acorn Dual Language Community Academy (Independent School District No. 625 (St. Paul))
City Academy (College of St. Catherine)
Community of Peace (Independent School District No. 625 (St. Paul))
Concordia Creative Learning Academy (Concordia University)
Cyber Village Academy (Special School District No.1 (Minneapolis))
Eci Nompa Woonspe Charter School (Redwood Falls School District)
Emily Charter School (Minnesota State Board of Education)
Heart of the Earth Center for the American Indian Education (Special School Dist. No.1 (Mpls.))
Higher Ground (Independent School District No. 625 (St. Paul))
Learning Adventures Middle School (Central Lakes College)
Martin Hughes Charter 4040 (Mountain Iron-Buhl School Board)
Metro Deaf School (Forest Lake School District)
Minnesota Business Academy (Independent School District No. 625 (St. Paul))
Minnesota Technology High School (Inver Hills Community College)
Minnesota Transitions Charter School (Special School District No. 1 (Minneapolis))
New Visions School (Special School District No. 1 (Minneapolis))
Odyssey Charter School (Osseo School District)
PACT Charter School (Anoka-Hennepin School District)
Skills for Tomorrow Senior High School (Rockford School District)
Sojourner Truth Academy (Special School District No. 1 (Minneapolis))
St. Paul Family Learning Center (Independent School District No. 625 (St. Paul))
World Learner of Chaska (Chaska School District)

Additionally, six open charter school results indicate large support staff personnel average salaries in comparison with the average salaries paid to teachers employed by the same charter school. Since this differs from the general pattern, this raises questions about the accuracy of the data. The following indicates the six charter schools with unusually large support staff personnel average salaries:

Coon Rapids Learning Center (Bethel College)
Fort Snelling Academy (Normandale College)
Heart of the Earth Center (Special School District No. 1. (Minneapolis))
High School for the Recording Arts (Independent School District No. 625 (St. Paul))
Math and Science Academy (Minnesota State Board of Education)
Rochester Off Campus School (Rochester Community and Technical College)

4. First Class City Teacher Retirement Plans At Greatest Charter School Retirement Contribution Default Risk. As a group, the first class city teacher retirement plans have the greatest number of charter school members proportionately, have the greatest amount of contributions potentially at risk, and are the least well funded of the various retirement plans.

1. Identification of Potential Remedies.
   
   The Commission staff has identified eleven potential remedies for any future default in charter school retirement plan member and employer contributions. A summary of each potential remedy is as follows:

1. Require Better Retirement Plan Contribution Monitoring. The potential for retirement contribution defaults by charter schools will be reduced if the retirement plan engages in more frequent and more regular monitoring of the retirement plan contributions from charter schools. As indicated in the case of unpaid charter school retirement contributions to the Minneapolis Teachers Retirement Fund Association (MTRFA), where the retirement contributions are several months in default, a failure to pursue remedies for any defaulted amounts increases the likelihood that the contributions would become unpaid and unredeemable and that the charter school would close without settling these debts.

2. Require School Charter Document To Include Monitoring And Collection Procedures. Contribution defaults by charter schools can be prevented or minimized if the charter document under which a charter school operates is required to contain specific procedures relating to retirement plan contribution payment monitoring and collection and those procedures are binding both on the charter school and the charter sponsor. Because each charter school is likely to argue that it has unique or special circumstances, establishing uniform comprehensive statutory monitoring and collection procedures may not be possible, but each charter school could be mandated to design appropriate and applicable procedures and included in the charter contract.

3. Require The Prepayment of Charter School Contributions. The potential for charter schools to default in making their retirement contributions would be reduced or eliminated if charter schools were required by statute to be prepaid. The statutory prepayment obligation, akin to the payment of estimated federal or state income taxes, could be quarterly, monthly, or annually.

4. Require The Deduction of Charter School Contributions From Charter School State Aid. An alternative procedure for preventing a default by charter schools in their retirement plan contributions would be to require the Department of Children, Families and Learning (CFL) to deduct an amount for retirement plan contributions from school aid amounts payable and to transmit the deductions to the applicable retirement plan. Currently, teacher retirement plan charter school contributions range from 0.66 percent of charter school revenue to 4.47 percent of charter school revenue, with an average of 1.78 percent. For support staff, charter school contributions to the Public Employees Retirement Association (PERA) range from 0.20 percent of charter school revenue to 1.97 percent of charter school revenue, with an average of 0.77 percent. On average, State aid to charter schools accounts for 80.88 percent of total charter school revenue, so deducting 3.15 percent (2.20 percent for teachers and 0.95 percent for support staff) of any State aid payment to a charter school would largely cover the average charter school contribution requirements.

5. Define A Retirement Contribution Default As Financial Mismanagement; Impose Moratorium on Charter Sponsors of Mismanaged Charter Schools. One means of indicating the importance of avoiding retirement plan contribution defaults by charter schools and the need for charter school sponsors to vigorously monitor charter school activity is to define financial mismanagement by a charter school, to include in that definition a default in the payment of retirement plan contributions or a significant delay in their payment, and to place a moratorium on the granting of new charters by a sponsor of a charter school which was involved in financial mismanagement. Minnesota Statutes, Section 124D.10, Subdivision 23, does not define financial mismanagement, but provides for charter nonrenewal or termination if the charter school fails to meet generally accepted standards of fiscal management. There are no current statutory restrictions on the number of charters that a sponsor may undertake, even if prior charter schools close or engage in financial mismanagement.

6. Require The Posting of Performance Bonds By Charter Schools or Charter Sponsors. To provide a remedy of making available assets to tap in the event of a charter school retirement plan contribution default, the charter school or the charter school sponsor could be required by statute to post a performance bond. Akin to many circumstances when the financial solvency of an entity in making a future stream of payments is uncertain, the posting of a bond would provide security through the creation of an access point to financial resources to cover the retirement plan contribution payment upon a default.

7. Establish a Charter School Contribution Surcharge For Future Unpaid Retirement Plan Contributions. To help insure that retirement plans will not be left with no financial resources to access when a charter school defaults on retirement plan contributions, a reserve could be established by statute and funded by a surcharge on charter school employer contributions. The reserve would be administered by the Department of Finance or by the Department of Children, Families and Learning. The surcharge amount should be seven tenths of one percent of covered salary of charter schools in order to raise an annual reserve of $25,000, the amount of current unpaid charter school retirement plan contributions. The surcharge could blink on and blink off depending on the size of the total reserve. At the end of each plan year, retirement plans could apply to have any unpaid retirement plan contributions covered from the reserve.

8. Establish a Retirement Plan Employer Contribution Surcharge To Defray Future Unpaid Retirement Plan Contributions. Akin to the prior potential remedy, a statutory reserve could be established and a surcharge could be imposed on the employers covered by the five affected retirement plans. The reserve would be administered by a centralized administrative structure, probably the Department of Children, Families and Learning or the Department of Finance, and invested by the State Board of Investment. In order to produce an annual reserve amount of $25,000, the amount of the current unpaid retirement plan contribution, the surcharge would need to be approximately $0.12 per active member per year. After a sizable reserve is established, the surcharge could blink on and blink off to maintain the reserve at a minimum level. The reserve would be drawn upon by retirement plans with unpaid charter school contributions or an annual basis, after the retirement plan had exhausted all other means for recovering the unpaid amounts.

9. Establish a Retirement Plan Employer and Membership Contribution Surcharge To Cover Future Unpaid Retirement Plan Contributions. The alternative is identical to the prior two potential remedies, except that the surcharge would be imposed on both members and employers. With a broadening financial base, the surcharge amount would be smaller to produce the same total revenue. To raise an annual amount of $25,000, the current unpaid closed charter school retirement plan contribution amount, the surcharge would need to be approximately $0.06 per active member per year.

10. Cover All Charter School Teachers By TRA. In order to minimize the potential for future charter school retirement plan contribution defaults, retirement coverage for charter school teachers could be provided through the statewide Teachers Retirement Association (TRA) rather than four teacher retirement plans. In addition to imposing a smaller employer retirement contribution on the affected charter schools, centralizing charter school teacher retirement coverage in TRA will utilize TRA’s existing system for collecting retirement plan contributions from disparate employing units.

11. Improve The Process For Checking Retirement Plan Membership Inclusions. While known unpaid charter school retirement plan contributions prompted this mandated interim project, there is a large likely problem of omitted charter school retirement plan contributions and retirement plan service credit gaps arising from charter school employees who are eligible for retirement plan coverage, but are not provided concurrent coverage and service credit. Some open charter schools reported by the Department of Children, Families and Learning were not reported as participating employing units by any retirement plan and a number of open charter schools were reported as participating employing units by a teacher retirement plan but were not reported by the General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General). If the charter school closes before the period for correcting omitted contributions runs, which is three years in PERA-General, no maximum period in the Teachers Retirement Association (TRA), and three years for the first class city teacher retirement plans, the affected charter school employee will have no resource other than special legislation to permit a service credit purchase, with potentially no remaining charter school upon which to impose the retirement plan contribution liability.

B-1. Draft Proposed Legislation LCPR01-230; Enhanced Retirement Plan Contribution Monitoring and Collection Procedures Relating To Charter Schools.

1. Summary
   
   Draft LCPR01-230 amends portions of Minnesota Statutes, Chapters 124D, relating to the approval of the formation of a charter school; 353, relating to the Public Employees Retirement Association (PERA) membership reporting and contribution collection; 354, relating to the Teachers Retirement Association (TRA) membership and reporting and contribution collection; and 354A, relating to the first class city teacher retirement fund associations membership reporting and contribution collection, by making the following changes:

1. Requires CFL Notification of Retirement Plans of Each Charter School Approval. The Commissioner of Children, Families and Learning (CFL) is required to notify the five relevant public retirement plans whenever CFL Department approval is given to a charter school authorization request.

2. PERA Membership and Contribution Reporting By Charter Schools Is Upgraded. Charter schools are specifically included in the PERA definition of "governmental subdivision." Charter schools are specifically required to file PERA membership exclusion reports and other employment status information. PERA is required to conduct semi-annual field audits of each charter school.

3. TRA Membership and Contribution Reporting By Charter Schools Is Upgraded. Charter schools are specifically required to distribute all TRA membership information, to report on post-retirement retiree teaching income, and to file member data, member deduction, and remittance reports. The chief administrative officers of charter schools are made specifically liable for the handling of TRA retirement contributions from the charter school. Charter schools are specifically included in the $5 per day late reporting fine. Charter school contributions unpaid for 60 days are subject to state debt collection enforcement.

4. First Class City Teacher Retirement Plan Membership and Contribution Reporting By Charter Schools Is Upgraded. Charter schools are specifically included in the first class city teacher retirement fund association definition of "school district." Charter schools are also specifically required to file plan membership and remittance reports. Charter school contributions unpaid for 60 days are subject to state debt collection enforcement.

2. Policy Issues
   
   Draft LCPR01-230 raises several pension and related public policy issues that may be of concern to the Commission, as follows:

1. Statutory Requirements Do Not Automatically Prompt Actual Retirement Plan Administrative Priority. The policy issue is the willingness of the five affected retirement plans to make the collection of charter school retirement contributions a priority administratively, since increased statutory requirements do not automatically translate into increased or improved administrative actions. Mandating better monitoring by the affected retirement plans and mandating better sponsor monitoring and collection procedures in the charter contracts between charter schools and charter sponsors should have a preventive impact without involving undue intrusion in charter school affairs. However, given the normal life span of bureaucratic efforts, the diligence of the retirement plans, the Department of Children, Families and Learning, charter sponsors, and charter schools in undertaking these procedures will vary and will wane over any extended period.

2. Administrative Burden of Requiring Additional PERA Field Audits of Charter Schools. The policy issue is the administrative burden on PERA of mandating two field audits annually of every charter school. There are currently 75 charter schools operating, according to the Department of Children, Families and Learning website, so this would require 150 field audits annually, with a greater number if the number of charter schools increases.

3. Self-Help Remedy of Vigilance Available As An Alternative To Legislative Mandates. The policy issue is the need for or the desirability of a legislative remedy mandating additional reporting or monitoring when the self-help remedy of increased retirement plan resolve and vigilance is available. It may be appropriate for the Commission to take testimony from the affected retirement plans on their current contribution enforcement mechanisms and their planned internal improvements before considering additional legislative mandates.

B-2. Draft Proposed Legislation LCPR01-231; Monthly Prepayment of Member and Employer Contributions By Charter Schools.

1. Summary
   
   Draft LCPR01-231 amends portions of Minnesota Statutes, Chapters 353, relating to the General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General) member, employer, and employer additional contributions; 354, relating to the Teachers Retirement Association (TRA) member and employer contributions, and 354A, relating to the first class city teacher retirement fund association member, employer, and employer additional contributions, by requiring that charter schools prepay these contributions monthly.

2. Policy Issues
   
   Draft LCPR01-231 raises several pension and related public policy issues that may merit additional consideration by the Commission, as follows:

1. Prepayment Will Impose A Financial Burden on Charter Schools. The policy issue is the burden on charter schools by legislation that mandates that they prepay their retirement contribution monthly. While the total amount of charter school contributions will be unchanged and prepayment would practically eliminate the potential for future charter school defaults, the prepayment obligation will change the timing of these payments and charter school finances may be very time sensitive.

2. Differing Procedures For Charter School Contributions May Cause Retirement Plan Administrative Problems. The policy issue is the potential for the creation of administration problems with the retirement plan by mandating differing contribution procedures and schedules for charter schools than those in force for all other employing units. Retirement plan computer systems, accounting systems, and administrative staff training procedures may need to be modified as a result of the mandate.

3. Potential Voidable Preference For Charter Schools Nearing Bankruptcy. The policy issue is the potential for the prepaid contributions by charter schools on the edge of financial collapse to constitute a voidable preference in future bankruptcy proceedings, thereby involving the retirement plans in future bankruptcy disputes.

B-3. Draft Proposed Legislation LCPR01-232; Deduction of Charter School Retirement Contribution From State Education Aid Payments.

1. Summary
   
   Draft LCPR01-232 amends Minnesota Statutes, Sections 353.27, 354.42, and 354A.12, relating to member, employer and employer additional contributions to the General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General), the Teachers Retirement Association (TRA), and the first class city teacher retirement fund associations, by making the charter school retirement contributions payable in advance for a school year from State education aid.

2. Policy Issues
   
   Draft LCPR01-232 raises several pension and related public policy issues that may be of concern to the Commission, as follows:

1. Prepayment Will Impose A Financial Burden on Charter Schools. See policy issue #1 for Draft LCPR01-231 (B-2).

2. Additional Retirement Plan Administrative Burdens. The policy issue is the appropriateness of increasing the administrative duties of the affected retirement plans in certifying annual charter school contribution prepayments, collecting those prepayments, and reconciling end-of-school-year amounts. The deduction of retirement contributions by the Department of Children, Families and Learning from future charter school state aid payments also will reduce the levels of future contribution defaults, but adds other complexities and may not eliminate the problem. The amount of total charter school revenue utilized to pay charter school personnel salaries varies considerably and the amount of retirement plan contributions also vary, so any "average amount" deductions will either overpay or underpay the contribution obligation in most cases. With an overpayment, the retirement plan will need to make reconciliation payments and, with an underpayment, the charter school may be faced with a difficult large lump sum payments towards the end of a school year.

3. Potential Voidable Preferences For Charter Schools Nearing Bankruptcy. See policy issue #3 for Draft LCPR01-231 (B-2).

B-4. Draft Proposed Legislation LCPR01-233; Requires Charter School Sponsors To Be Bonded For a Portion of Charter School Contributions Payable.

1. Summary
   
   Draft LCPR01-233 amends Minnesota Statutes, Section 124D.10, Subdivision 4, relating to sponsor requirements in the formation of charter schools, by requiring charter school sponsors to provide the Department of Children, Families and Learning with evidence of having bonding sufficient to cover 25 percent of the likely annual charter school retirement contributions in the event of a contribution default.

2. Policy Issues
   
   Draft LCPR01-233 raises several pension and related public policy issues that may merit additional consideration by the Commission, as follows:

1. Potential Financial Burden on Charter Schools or Charter School Sponsors. The policy issue is the appropriateness of imposing a financial burden on either charter schools or charter school sponsors by virtue of the cost of the mandated bonding. A bonding requirement will insure against retirement plan contribution defaults, but will impose a financial cost either on the charter school or on the charter sponsor. As a new bonding requirement, the likely cost of the bonds may be difficult to estimate.

2. Likely Potential Gaps In Bond Coverage. The policy issue is the likely potential deficiency in the remedy by virtue of a mismatch in the bond coverage and any future charter school retirement plan contribution defaults. The amount of charter school retirement plan contributions will be a highly variable number over time and the bonds, although required to be modified annually, will not be a perfect match for every future default. The adequacy of the bonding will depend on the vigilance of the Department of Children, Families and Learning employees assigned to the duty of monitoring the bonding requirement.

3. Potential Administrative Burden On The Department of Children, Families and Learning. The policy issue is the appropriateness of imposing an additional administrative burden on the Department of Children, Families and Learning in monitoring the proposed charter school retirement plan contribution bonding requirement. With 75 current charter schools and more potential future charter schools, the extent of the personnel needed to undertake this responsibility is difficult to estimate.

B-5. Draft Proposed Legislation LCPR01-234; Ongoing Surcharge on Charter Schools For Contribution Default Reserve.

1. Summary
   
   Draft LCPR01-234 amends Minnesota Statutes, Chapter 11A, relating to the State Board of Investment; Chapter 127A, relating to the Commissioner of Children, Families and Learning; Section 353.27, Subdivision 3, relating to employer contributions to the General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General); Section 354.42, Subdivision 3, relating to employer contributions to the Teachers Retirement Association (TRA); and Section 354A.12, Subdivision 2a, relating to employer contributions to the first class city teacher retirement fund associations, by establishing an unpaid closed charter school retirement contribution reserve of $50,000, administrated by the Department of Children, Families and Learning (CFL), invested by the State Board of Investment, and funded by a 0.70 percent of salary surcharge on employer retirement plan contributions from all charter schools. The surcharge would blink on and blink off when the reserve is under or over $50,000, respectively, in the prior year.

2. Policy Issues
   
   Draft LCPR01-234 raises several pension and related public policy issues that the Commission may wish to discuss, as follows:

1. Fairness In Imposing a Surcharge Burden on Current Charter Schools. See policy issue #2 for Draft LCPR01-243 (A-3).

2. Administrative Complexity In Collection And Disbursement. See policy issue #3 for Draft LCPR01-243 (A-3).

3. Administrative Burden on the Department of Children, Families and Learning to Operate The Reserve. The policy issue is the appropriateness of imposing additional administrative burdens on the Department of Children, Families and Learning to operate the proposed unpaid closed charter school retirement plan contribution reserve. The reserve involves retirement contributions and retirement plans, which are presumably outside the department’s normal function. The reserve also is likely to be a novel administrative task for the department.

B-6. Draft Proposed Legislation LCPR01-235; Ongoing Surcharge on Employer Contributions For Closed Charter School Contribution Default Reserve.

1. Summary
   
   Draft LCPR01-235 amends Minnesota Statutes, Chapter 11A, relating to the State Board of Investment; Chapter 127A, relating to the Commissioner of Children, Families and Learning; Section 353.27, Subdivision 3, relating to employer contributions to the General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General); Section 354.42, Subdivision 3, relating to employer contributions to the Teachers Retirement Association (TRA); and Section 354A.12, Subdivision 2a, relating to employer contributions to the first class city teacher retirement fund associations, by establishing an unpaid closed charter school retirement contribution reserve of $100,000, administered by the Department of Children, Families and Learning (CFL), invested by the State Board of Investment, and funded by a 0.01 percent of salary surcharge on employer retirement plan contributions from all PERA, TRA, and first class city teacher retirement fund association participating employers. The surcharge would blink on and blink off when the reserve is under or over $1000,000, respectively, in the prior year.

2. Policy Issues
   
   Draft LCPR01-235 raises several pension and related public policy issues that may merit Commission deliberation, as follows:

1. Fairness In Imposing Surcharge Burden on Various Employer Units. See policy issue #1 for Draft LCPR01-225 (A-4).

2. Administrative Complexity In Collection and Disbursement. See policy issue #3 for Draft LCPR01-225 (A-4).

3. Administrative Burden on the Department of Children, Families and Learning To Operate The Reserve. See policy issue #3 for Draft LCPR01-234 (B-5).

B-7. Draft Proposed Legislation LCPR01-236; Ongoing Surcharge on Member and Employer Contributions For Closed Charter School Contribution Default Reserve.

1. Summary
   
   Draft LCPR01-236 amends Minnesota Statutes, Chapter 11A, relating to the State Board of Investment; Chapter 127A, relating to the Commissioner of Children, Families and Learning; Section 353.27, Subdivisions 2 and 3, relating to member and employer contributions to the General Employees Retirement Plan of the Public Employees Retirement Association (PERA-General); Section 354.42, Subdivisions 2 and 3, relating to member and employer contributions to the Teachers Retirement Association (TRA); and Section 354A.12, Subdivisions 1 and 2a, relating to member and employer contributions to the first class city teacher retirement fund associations, by establishing an unpaid closed charter school retirement contribution reserve of $200,000, administered by the Department of Children, Families and Learning (CFL), invested by the State Board of Investment, and funded by a 0.005 percent of salary surcharge on member and employer retirement plan contributions from all plan members and their employers. The surcharge would blink on and blink off when the reserve is under or over $2000,000, respectively, in the prior year.

2. Policy Issues
   
   Draft LCPR01-236 raises several pension and related public policy issues that the Commission may wish to discuss, as follows:

1. Fairness In Imposing Surcharge Burden on Retirement Plan Members and Employers. See policy issue #1 for Draft LCPR01-226 (A-5).

2. Administrative Complexity In Collection and Disbursement. See policy issue #3 for Draft LCPR01-226 (A-5).

3. Administrative Burden on the Department of Children, Families and Learning To Operate the Reserve. See policy issue #3 for Draft LCPR01-234 (B-5).

B-8. Draft Proposed Legislation LCPR01-237; Moratorium on New Charter Schools For a Sponsor of Prior Charter School Defaulting on Retirement Contribution Obligation.

1. Summary
   
   Draft LCPR01-237 amends Minnesota Statutes, Section 124D.10, Subdivisions 3 and 23, by imposing a five year moratorium on the sponsorship of additional charter schools by a sponsor of a closed charter school with unpaid retirement plan contributions and by defining financial management to include a failure by a closed charter school to make the timely payment of public retirement plan contributions.

2. Policy Issues
   
   Draft LCPR01-237 raises several pension and related public policy issues that the Commission may desire to scrutinize further, as follows:

1. Hardship On Pending Charter School Authorizations. The policy issue is the potential hardship that may be worked on potential charter school sponsors and potential charter school operators by impeding or interfering with pending charter authorizations by the Department of Children, Families and Learning. The remedy of imposing a moratorium on granting new charters by sponsors involved in any prior retirement plan contribution default will indicate the seriousness with which the Legislature views the topic of potential defaults, but may impede the creation of valuable new charter schools because of a misdeed by another charter school. Immediately affected would be any new charter schools sponsored by the Minneapolis School Board, the Minnesota State Board of Education/Department of Children, Families and Learning, and the St. Cloud School Board.

2. Appropriateness of the Five Year Moratorium Duration. The policy issue is the appropriateness of placing a five year duration moratorium on the creation of new charter schools by charter sponsors who had sponsored a closed charter school which defaulted in paying retirement contributions. While the moratorium indicates legislative displeasure with sponsors connected with closed defaulting charter schools, the selection of a five year period is arbitrary and is not clearly targeted to actually prevent future charter school defaults.

3. The Appropriateness of Defining Retirement Contribution Default As Financial Mismanagement. The policy issue is the appropriateness of defining the default of a charter school in making retirement plan contributions as financial mismanagement that could be the basis for a charter sponsor terminating or not renewing a charter school charter. While it is unclear what the proponents of past charter school legislation intended by the phrase "financial mismanagement," default in meeting a legal obligation such as retirement plan contributions would normally be included in the general perception of what is meant by financial mismanagement.

B-9. Draft Proposed Legislation LCPR01-238; Ongoing State General Fund Appropriation To Pay Closed Charter School Unpaid Retirement Plan Contributions.

1. Summary
   
   Draft LCPR01-238 amends Minnesota Statutes, Chapter 356, relating to retirement generally, by adding an annual standing $50,000 appropriation from the State General Fund to the Commissioner of Children, Families and Learning for the payment of unpaid retirement plan contributions of closed charter schools.

2. Policy Issues
   
   Draft LCPR01-238 raises several pension and related public policy issues that the Commission may wish to consider further, as follows:

1. Precedent For Additional State Bailouts. See policy issue #1 for Draft LCPR01-229 (A-8).

2. Potential Encouragement of Future Charter School Irresponsibility. See policy issue #2 for Draft LCPR01-229 (A-8).

3. Potential Encouragement of Future Laxity By Retirement Plan Administrators. See policy issue #$3 for Draft LCPR01-229 (A-8).

B-10. Draft Proposed Legislation LCPR01-239; Ongoing Subtraction From Charter School Lease Aid To Pay Closed Charter School Unpaid Retirement Plan Contributions.

1. Summary
   
   Draft LCPR01-239 amends Minnesota Statutes, Chapter 356, relating to retirement generally, by adding a standing annual deduction from charter school lease aid of the amount needed to pay unpaid retirement plan contributions of closed charter schools.

2. Policy Issues
   
   Draft LCPR01-239 raises several pension and related public policy issues that may merit additional consideration by the Commission, as follows:

1. Appropriateness of Imposing The Default Burden on Current Charter Schools. See policy issue #1 for Draft LCPR01-228 (A-7).

2. Appropriate Allocation of the Burden Between Charter Schools. See policy issue #2 for Draft LCPR01-228 (A-7).

3. Unclear Relationship Between Charter School Lease Aid And Retirement Contributions. See policy issue #3 for Draft LCPR01-228 (A-7).

B-11. Draft Proposed Legislation LCPR01-240; Codifying The Current Allocation of Members Among Teacher Retirement Plans.

1. Summary
   
   Draft LCPR01-240 amends Minnesota Statutes, Sections 354.05, subdivision 2, relating to membership in the statewide Teachers Retirement Association (TRA), and 354A.011, Subdivision 27, relating to membership in one of the first class city teacher retirement fund associations, by codifying the current informal arrangement of allocating charter school teacher membership based on the geographical location of the charter school.

2. Policy Issues
   
   Draft LCPR01-240 raises several pension and related public policy issues that the Commission may wish to review further, as follows:

1. Appropriateness of The Current Non-Statutory Membership Allocation. The policy issue is the appropriateness of the current method of allocating charter school teachers as members of the State’s four teacher retirement plans. The current allocation agreement, reached informally by the four teacher retirement plans in 1995, relies on the geographical location of the charter school building, and not of the charter sponsor, to determine appropriate retirement plan membership.

2. Appropriateness of Codifying Informal Membership Allocation Arrangements. The policy issue is the appropriateness of the Legislature in sanctioning informal implementation agreements on the allocation of plan members. The implementation of the requirement that charter school teachers have teacher retirement plan coverage should have been ultimately presented to the Commission and the Legislature for its review and action.

3. Capacity of the Four Teacher Retirement Plans In Monitoring Charter School Membership and Contributions. The policy issue is whether or not the first class city teacher retirement fund associations have the capacity to actively and aggressively monitor charter school membership inclusions and contributions. The Duluth Teachers Retirement Fund Association (DTRFA) has had minimal exposure to charter schools and no closed charter school retirement contribution defaults. The Minneapolis Teachers Retirement Fund Association (MTRFA) has had the greatest charter school contribution default problem. The St. Paul Teachers Retirement Fund Association (StPTRFA) has apparently been vigorous in its monitoring and was able to resolve potential defaults. The Teachers Retirement Association (TRA) has had apparently minimal expereince with charter school contribution defaults.

B-12. Draft Proposed Legislation LCPR01-241; Providing Retirement Plan Coverage For All Charter School Teachers in the Statewide Teachers Retirement Association (TRA).

1. Summary
   
   Draft LCPR01-241 amends Minnesota Statutes, Sections 354.05, Subdivision 2, relating to membership in the statewide Teachers Retirement Association (TRA); and 354A.011, Subdivision 27, relating to membership in one of the first class city teacher retirement fund associations, by requiring that all charter school teachers become members of TRA, irrespective of the geographical location of the charter school, and excluding charter school teachers from first class city teacher retirement fund association membership.

2. Policy Issues
   
   Draft LCPR01-241 raises several pension and related policy issues for potential Commission consideration, as follows:

1. Appropriateness of Centralizing Charter School Teacher Members In One Retirement Plan. The policy issue is the appropriateness of utilizing a single teacher retirement plan to provide retirement coverage to all charter school teachers. Centralizing the retirement plan membership for charter school teachers will allow the Teachers Retirement Association (TRA) to concentrate its expertise and collection procedures on the problem.

2. Capacity of the Four Teacher Retirement Plans In Monitoring Charter School Membership and Contributions. See policy issue #3 for Draft LCPR01-240 (B-10).

3. Employer Retirement Contribution Savings To Metropolitan Charter Schools In TRA Coverage. The policy issue is whether it is appropriate to extend the reduced Teachers Retirement Association (TRA) employer contribution requirement to charter schools currently covered by one of the first class city teacher retirement fund associations. Consolidating charter school teacher retirement plan coverage into TRA rather than four teacher plans will save the applicable charter schools almost $550,000 in employer contributions in total annually because of the differences in current teacher retirement plan employer contribution rates, as follows:

B-13. Draft Proposed Legislation LCPR01-242; Requiring Annual CFL Review of Charter School Employee Retirement Plan Membership Eligibility.

1. Summary
   
   Draft LCPR01-242 amends Minnesota Statutes, Chapter 356, relating to retirement generally, by requiring the Commissioner of Children, Families and Learning (CFL) to annually conduct a review of the retirement plan membership eligibility and membership of charter school employees, with the power to order coverage corrections in the event of errors or omissions, and with the requirement of filing a summary report of CFL findings with the appropriate legislative committees.

2. Policy Issues
   
   Draft LCPR01-242 raises several pension and related public policy issues that may merit additional considerations by the Commission, as follows:

1. Potential Reduction In Future Legislative Time Spent Resolving Charter School Coverage Issues. The policy issue is the potential for the mandated review process to reduce the need for future legislative involvement in resolving situations of public employment with public retirement plan coverage. An improvement in membership inclusion checks should save on a poor use of future legislative time by reducing special service credit purchase legislation demands and will avoid disruptions in the retirement coverage of affected individuals, but mandating checks does not mean that scrutiny actually improves over the long term.

2. Mandated Review Will Not Substitute For Retirement Plan Vigilance. The policy issue is the effectiveness of the proposed mandated review if it is not accompanied by retirement plan vigilance. For example, under Minnesota Statutes, Section 353.27, Subdivisions 10 and 11, the Public Employees Retirement Association (PERA) is obligated to regularly scrutinize the entirety of local government employment for any retirement plan coverage and membership omissions, but PERA still produces the largest number of special service credit purchase legislative requests processed by the Commission in any year.

3. Appropriateness of Department of Children, Families and Learning Intrusion In An Area Foreign To Its Normal Activities. The policy issue is the appropriateness of utilizing the Department of Children, Families and Learning to conduct periodic retirement coverage eligibility and membership reviews of charter school employees. The Department of Children, Families and Learning does not regularly venture into retirement plan operations or retirement law.

This Commission staff memorandum is intended to identify and review the available remedies for unpaid charter school retirement plan contributions and the available remedies for unpaid charter school retirement plan contributions and the available mechanisms for recovering previous unpaid closed charter school retirement plan contributions. The third Commission staff issue memorandum will present a draft narrative of the Commission’s mandated report to assist the Commission as it attempts to formulate a recommendation on the appropriate mechanism for recovering unpaid retirement contributions from closed charter schools and any other relevant potential legislation related to retirement coverage for charter schools.